Spend the Bailout Money on the Middle Class

It is sad to see both major parties agree to spend $700 billion of taxpayer money to bail out huge financial institutions that are notable for two characteristics: incompetence and greed. There is a much better solution to the financial crisis. But it would require discarding what has been conventional wisdom for too long: that government intervention in the economy (“big government”) must be avoided like the plague, because the “free market” can be depended on to guide the economy toward growth and justice. Surely the sight of Wall Street begging for government aid is almost comic in light of its long devotion to a “free market” unregulated by government.

Let’s face a historical truth: we have never had a free market. We have always had government intervention in the economy, and indeed that intervention has been welcomed by the captains of finance and industry. These titans of wealth hypocritically warned against “big government” but only when government threatened to regulate their activities or when it contemplated passing some of the nation’s wealth on to the neediest people. They had no quarrel with big government when it served their needs.

It started way back when the founding fathers met in Philadelphia in 1787 to draft the Constitution. The year before, they had seen armed rebellions of farmers in western Massachusetts (Shays’s Rebellion), where farms were being seized for nonpayment of taxes. Thousands of farmers surrounded the courthouses and refused to allow their farms to be auctioned off. The founders’ correspondence at this time makes clear their worries about such uprisings getting out of hand. Gen. Henry Knox wrote to George Washington, warning that the ordinary soldier who fought in the Revolution thought that by contributing to the defeat of England he deserved an equal share of the wealth of the country, that “the property of the United States…ought to be the common property of all.”

In framing the Constitution, the founders created “big government” powerful enough to put down the rebellions of farmers, to return escaped slaves to their masters and to put down Indian resistance when settlers moved westward. The first big bailout was the decision of the new government to redeem for full value the almost worthless bonds held by speculators.

From the start, in the first sessions of the first Congress, the government interfered with the free market by establishing tariffs to subsidize manufacturers and by becoming a partner with private banks in establishing a national bank. This role of big government supporting the interests of the business classes has continued all through the nation’s history. Thus, in the nineteenth century the government subsidized canals and the merchant marine. In the decades before and during the Civil War, the government gave away some 100 million acres of land to the railroads, along with considerable loans to keep the railroad interests in business. The 10,000 Chinese and 3,000 Irish who worked on the transcontinental railroad got no free land and no loans, only long hours, little pay, accidents and sickness.

The principle of government helping big business and refusing government largesse to the poor was bipartisan, upheld by Republicans and Democrats. President Grover Cleveland, a Democrat, vetoed a bill to give $10,000 to Texas farmers to help them buy seed grain during a drought, saying, “Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character.” But that same year, he used the gold surplus to pay wealthy bondholders $28 above the value of each bond–a gift of $5 million.

Cleveland was enunciating the principle of rugged individualism–that we must make our fortunes on our own, without help from the government. In his 1931 Harper’s essay “The Myth of Rugged American Individualism,” historian Charles Beard carefully cataloged fifteen instances of the government intervening in the economy for the benefit of big business. Beard wrote, “For forty years or more there has not been a President, Republican or Democrat, who has not talked against government interference and then supported measures adding more interference to the huge collection already accumulated.”

After World War II the aircraft industry had to be saved by infusions of government money. Then came the oil depletion allowances for the oil companies and the huge bailout for the Chrysler Corporation. In the 1980s the government bailed out the savings and loan industry with hundreds of billions of dollars, and the Cato Institute reports that in 2006 needy corporations like Boeing, Xerox, Motorola, Dow Chemical and General Electric received $92 billion in corporate welfare.

A simple and powerful alternative would be to take that huge sum of money, $700 billion, and give it directly to the people who need it. Let the government declare a moratorium on foreclosures and help homeowners pay off their mortgages. Create a federal jobs program to guarantee work to people who want and need jobs.

We have a historic and successful precedent. The government in the early days of the New Deal put millions of people to work rebuilding the nation’s infrastructure. Hundreds of thousands of young people, instead of joining the army to escape poverty, joined the Civil Conservation Corps, which built bridges and highways, cleaned up harbors and rivers. Thousands of artists, musicians and writers were employed by the WPA’s arts programs to paint murals, produce plays, write symphonies. The New Deal (defying the cries of “socialism”) established Social Security, which, along with the GI Bill, became a model for what government could do to help its people.

That can be carried further, with “health security”–free healthcare for all, administered by the government, paid for from our Treasury, bypassing the insurance companies and the other privateers of the health industry. All that will take more than $700 billion. But the money is there: in the $600 billion for the military budget, once we decide we will not be a warmaking nation anymore, and in the bloated bank accounts of the superrich, once we bring them down to ordinary-rich size by taxing vigorously their income and their wealth.

When the cry goes up, whether from Republicans or Democrats, that this must not be done because it is “big government,” the citizens should just laugh. And then agitate and organize on behalf of what the Declaration of Independence promised: that it is the responsibility of government to ensure the equal right of all to “Life, Liberty, and the pursuit of Happiness.”

This is a golden opportunity for Obama to distance himself cleanly from McCain as well as the fossilized Democratic Party leaders, giving life to his slogan of change and thereby sweeping into office. And if he doesn’t act, it will be up to the people, as it always has been, to raise a shout that will be heard around the world–and compel the politicians to listen.